GOLD will ride a final leg of the recent rally to a fresh peak in the first half of 2004, but the yellow metal remains vulnerable to the withdrawal of support from speculative investors, according to Barclays Capital, the investment banking division of Barclays Bank Plc.

The forecast for 2004 is that gold will average $420 (approximately Rs 19,051) an ounce with a high of $470/oz (approximately Rs 21,319) and a low of $370/oz (approximately Rs 16,783).

Over the course of the current year, the risks are biased to the downside with the potential for dollar recovery, poor physical demand, disappointing levels of interest from long-term investors, a slowdown in de-hedging, a negative surprise from the European central banks on the next agreement in September, strong financial markets and/or there being no war/major terrorist incident, according to Mr Kamal Naqvi, Barclays' precious metals analyst.

"Inflation may well become the next `great hope' for higher prices but is still unlikely to affect prices in 2004," he said.

The rally in gold has become increasingly fuelled by the depreciating dollar, or more accurately, following the trend in Euro. "However, it is important to note that this relationship is more self-fulfilling than fundamental in nature," the expert pointed out adding that both the global environment (financial and geo-political) and gold-market specific developments (producer de-hedging, and gold investment promotion) have strongly reinforced the euro-gold relationship.

Gold has also clearly benefited from the wider investment trend towards commodities as a whole although this has been a more unique experience for other commodities. "In our view, a lot of `gold positive' news is already priced in," Mr Naqvi said.

Technical analyst of Barclays Capital, Mr Phil Roberts pointed out in his technical analysis for 2004 that all trends still pointed higher, but gold had a strong tendency to correct in the first quarter.

While the dollar remained under pressure, gold can be expected to spike up to $440 (approximately Rs 19,958) before correcting back down to $390 (approximately Rs 17,690) an ounce. "Thereafter we expect the price to recover to $480-500 in the second half of 2004," the analyst said.